Aristocrat weathers a fiscal maelstrom

Mar 4, 2003 6:07 AM

Aristocrat Leisure has fallen on hard times, and that has several of its suppliers worried.

Stock in the world’s second largest slot machine maker is in a virtual free-fall, with share prices plummeting 64 percent in the past three months. Shares, priced at $1.86, were trading last week near a 52-week low.

The sell-off was triggered, in part, by the Australia-based gamemaker’s announcement that a South American contract went south. Aristocrat reported that a customer who had agreed to take a "significant number" of machines had failed to fulfill certain obligations.

"This was not just a little bit of a profit warning, this was a bombshell,’’ said Paul Kasian, chief investment officer at HSBC Asset Management Australia.

Sources tell GamingToday that the South American news ”” which identified neither the company in question nor the size of the order ”” may, in fact, be a smokescreen to cover even larger problems at Aristocrat.

Once a star among global gamemakers, Aristocrat came under increasing fire last month as fleeing investors sliced $800 million from the company’s market capitalization. Some are calling for the removal of top management, with the call partially answered this week (see accompanying sidebar).

Meantime, regulators in Australia are expected to question the company about the timing of its disclosures.

Responding to the allegations, Randall is hanging tough. "I think the easy way out is to fall on the sword and exit stage left, but if you’re really responsible, you’ve got to fix it,’’ he said. He added that he would oversee a review of the group’s business in the Americas.

But Aristocrat’s growing legion of critics — including some of its vendors — is bothered by new, unconfirmed reports that Randall and Newburg sold stock just prior to the South American announcement.

At the same time, insiders say that top executives killed employee bonuses, further dampening morale at the company.

Neither Randall nor Newburg has responded to these allegations, but several suppliers — including some in Las Vegas — say one thing is certain: Aristocrat’s missteps are costing them dearly. Some complain that they are now stuck with inventory that may not move in the foreseeable future.

"It’s affecting a lot of small companies,’’ said one Las Vegas vendor. "We were led to believe that the South American market was really going to open up [for Aristocrat].’’

Mikohn Gaming Corp. is one local firm that could be feeling the pinch. The company, which has had a rough financial ride of its own, recently expanded a previously announced strategic alliance in which Aristocrat will service, maintain and refurbish slot machines.

An analyst who requested anonymity said, "It seems to me that [Aristocrat] was gambling in South America because they were promising the market U.S. growth and couldn’t deliver it. Instead of fessing up, they were over committing themselves in the South American market.

"They have not portrayed it how it is.’’


Aristocrat dumps U.S. exec’s

According to published reports, Aristocrat Leisure removed its U.S. management team on Monday in the wake of poor company performance and plunging stock prices.

Company officials said President Mark Newburg and Chief Financial Officer Ron Rowan will leave the company by the end of the week, and vice president of sales David Lucchese will depart later in the month.

CEO Des Randall will assume their duties for the time being.

Key shareholders have been calling for a change at the top since stock prices began to slide last month.

After losing the South American slot deal, Aristocrat cut its profit target by $28 million (Australian), prompting a sell-off that cut its market capitalization by more than $1 billion.

In a statement to the Australian Stock Exchange on Monday, Aristocrat said a special board meeting later this month will review its American business operations.